Shadow Capitalism: Market Commentary by Naufal Sanaullah

Shadow Capitalism
Market Commentary by Naufal Sanaullah
Naufal Sanaullah Chinese CPI comes in at whisper figures after cut to food
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www.shadowcapitalism.com
weighting, while new loans come in at ¥1.2t as WestLB &
Portuguese GDP weigh on euro 13F Monday
Good start to the week for risk today, as growths in Chinese exports and muted Chinese CPI helped
bring EM risk back on, as copper hits new highs and Asian bourses rally hard off recent lows. After
rumors of a 4.9% CPI print due to a cut in the food weighting to the CPI basket, the official figures
delivered precisely that, leading to cooled rate risk and a nice bid for oversold EM. The Chinese
January trade figures are interesting, however, considering although exports beat (37.7% YoY vs
22.5% YoY expected), imports surged through expectations at a margin well beyond that (51.0%
YoY vs 27.0% YoY expected), leading to a $6.46b trade balance, $4.84b below expectations. Food
imports undoubtedly were a big factor in that. Eurozone and Portugal GDP both miss by 10bps
QoQ (0.1% vs 0.0% and 1.2% vs 1.3%, respectively), leading to a bit of euro weakness that was
extended after WestLB announced failure to reach a restructuring agreement, causing fears of
senior bondholder impairment to rise. Meanwhile in the US, Obama continues his reelection mode
agenda with a $1.1t deficit cut in his FY 2012 budget proposal.
The S&P up another 0.24% today, extending its bounce off of 1300 from yesterday, although
volume continues declining. With EM risk back to being bid for now, the short EM/long DM trade
could be in for some unwinds, and with US equity as extended as it is, I added a bit more
protection in the form of short index ETF exposure to hedge my longs at these levels. Summer
2008 highs in the SPY ETF are about 100bps away from current levels.
February 15, 2011|1

After a sharp drop in London trading on the WestLB news, EURUSD spent much of the New York
session recovering early losses, and bounced smartly off of the important 1.340-1.345 S/R level
that marks December and January 2010 cycle highs. Look for price action around that zone to be
key for future trend development. With event risk popping back up in the Eurozone and fiscally
hawkish rhetoric from Obama, my bias remains to the downside in this pair, to perhaps a retest of
its 200d.
Also be watching EURCHF here, as USDCHF is hitting cycle highs and retracing a bit, while EURUSD
appears to have some risk of rolling over in the near-term. EURCHF has been retracing off of just
below the 1.325 pivot that held up as good support last fall before being breached in November.
200d and trendline resistance are also within a couple big figs to the upside of current levels. With
periphery concerns starting to heat up again as Portuguese 10yr yields stay above 700bps, I think
EURCHF is a terrific short at current levels and presents an attractive risk/reward opportunity.
Below January cycle highs at 1.305, I’ll be adding in size to my short.
February 15, 2011|2

CAD, one of my top 11 market themes of 2011, has been trading well since yesterday’s bullish
merchandise trade figures, and USDCAD appears poised to break below the 9850 level, which
could to lead to much more CAD upside. After bouncing sharply off of significant support at 9800,
AUDCAD has been more or less stagnant and a break below 98c could send CAD pairs surging
across the board, as AUDCAD is a widely-watched relative value short play at these levels and in
this market environment. With Canadian equity indices approaching all-time highs, the case for
Canada is strong here.
Moving over to US equity, I’m switching gears from yesterday’s bull cases for BSQR (which was up
over 10% today) and MRCY, to a short opportunity I see in Carkmike Cinemas (CKEC). When stocks
are extended as they currently are, I like to look for some weak companies that have been holding
up in the strong market but exhibiting significant relative weakness, suggesting a turn in the
general market could lead to some strong breakdowns in the stock. Today was an instance of
Bukowski’s NR7, with the range being as small as it was, and as per Sentiment Trader, NR7 at 52wk
highs with lower volume than the previous two days has led to a decline within a week in eleven of
the last twelve occurrences. As such, I ran some scans today and came across CKEC, a movie
theater operator catering to small, rural markets. Theaters are obviously not the best industry to
be in, with the digital commoditization of video media due to the likes of Netflix and such, and
sales have gone absolutely nowhere in the last two years. With debt/equity ratios through the roof
and an expensive 22x multiple for a stock that has seen four sequential quarters of decreased fund
sponsorship, the fundamental story looks ripe for shorting. Moving to the technical side of things,
the 200d is approaching a cross back below the 55d, while the stock price approaches an underside
test of both moving averages. October and November both saw failures at the 200d and I expect
the same here, while a stop on a close over the 200d allows for an attractive risk/reward,
considering I think this stock is headed back below $5. I love to short stocks during bull cycles that
have underperformed significantly trading sideways/stagnant, after selling off sharply during the
previous bear cycle. This is precisely what the chart shows for CKEC, which fell from $19 to the
mid-$5s from April highs to June lows, and has traded unimpressively exclusively in single digits
since then. Relative strength vs the S&P broke down earlier this month to new cycle lows, and we
are currently retesting that breakdown level, making today’s entry point all the better. I’m short
from an average fill of 7.33. No word on what the spike in volume this afternoon was about.
February 15, 2011|3

Rounding things out for tonight, I wanted to point a few hedge fund position changes for Q4, as
per 13F filings. Paulson out with a 10% reduction in his BAC position in Q4, down from 137m
shares to 124m shares. Perhaps litigation risk led him to sell into strength after the bank rally from
lows where BAC was trading under book value (whatever that means for a bank). Paulson also out
with a new 7.2m stake in driller Transocean (RIG) in Q4, his thirteenth largest equity position as per
the filing, to join his fifth largest equity stake, Andarko Petroleum (APC). Meanwhile, Tepper added
to his financials longs in Q4, as well as significantly to International Paper (IP) (which, incidentally,
Paulson also owns a lot of) and Microsoft (MSFT) (which I am bullish on and long). He also started a
new 17m share position in Micron (MU), now his ninth biggest holding, as well as in Dean Foods
(DF).
Tomorrow brings:
 Q4 Greece GDP (time N/A: -1.5% expected | -1.3% prior – QoQ)

 Q4 Germany GDP (2:00 AM EST: +0.5% expected | +0.7% prior – QoQ)
 January UK CPI (4:30 AM EST: +4.0% expected | +3.7% prior – YoY)
February 15, 2011|4

 Q4 Eurozone GDP (5:00 AM EST: +0.4% expected | +0.3% prior – QoQ)
 January US advance retails sales (8:30 AM EST: +0.5% expected | +0.6% prior – MoM)
 February US Empire Manufacturing (8:30 AM EST: 15.00 expected | 11.92 prior)
Best of luck trading.
Naufal
February 15, 2011|5

Trades
OPEN Long URRE | 3.30 | stop 2.85 | -1.52%
Long UEC | 6.28 | stop 5.55 | +7.80%
Long /ZW | 690.00 | stop 675.30 | +25.83% Long USD/JPY | 83.00 | stop 81.75 | +55 pips
Long /ZC | 550.00 | stop 541.90 | +26.91% Long CAD/JPY | 83.55 | stop 82.50 | +100 pips
Long /CT | 150.00 | stop 138.50 | +23.33% Long SGD/JPY | 64.95 | stop 64.30 | +25 pips
Long OIH | 140.65 | stop 135.00 | +12.73% Short EUR/USD | 1.3605 | stop 1.3760 | +135 pips
Long MXIM | 25.02 | stop 24.45 | +12.00% Long USD/CHF | 0.9650 | stop 0.9540 | +55 pips
Short ACOR | 28.90 | stop 30.60 | +18.37% Long MRCY | 18.70 | stop 17.75 | +3.90%
Long ERJ | 30.10 | stop 28.90 | +15.05% Long GOOG | 618.05 | stop 595.00 | +1.63%
Long TDY | 45.05 | stop 44.85 | +12.48% Long BSQR | 10.60 | stop 9.35 | +12.74%
Long TITN | 21.30 | stop 20.45 | +23.47% Long PRGO | 72.76 | stop 71. 20 | +2.61%
Short AUD/NOK | 5.850 | stop 5.915 | +10 pips Long TTMI | 18.12 | stop 17.45 | +2.43%
Long WBS | 21.05 | stop 20.05 | +11.54% Short EUR/CAD | 1.3475 | stop 1.3580 | +160 pips
Long NE | 37.65 | stop 36.50 | +6.77% Short AUD/CAD | 0.9925 | stop 1.0030 | +30 pips
Long CAB | 23.40 | stop 22.75 | +20.90% Long JBL | 21.60 | stop 21.00 | +3.61%
Long /CL | 86.30 | stop 83.80 | -0.93% Long CRUS | 23.77 | stop 23.10 | +4.96%
Long UA | 57.55 | stop 51.55 | +19.82% Long JOBS | 57.00 | stop 55.00 | +4.82%
Long MEE | 55.55 | stop 51.00 | +16.51% Short GME | 20.22 | stop 21.25 | +1.73%
Long IAG | 19.55 | stop 18.50 | +4.81% Long MSB | 33.98 | stop 32.45 | +3.03%
Long CRR | 114.33 | stop 105.00 | +6.10% Short MMYT | 28.85 | stop 30.10 | -2.52%
Long CNQ | 43.65 | stop 42.55 | +2.86% Long CHK | 30.65 | stop 28.50 | +2.93%
Long MOO | 56.35 | stop 55.15 | +2.52% Long NOG | 28.11 | stop 26.55 | +6.37%
Long SOHU | 80.04 | stop 73.00 | +10.00% Long CTXS | 69.61 | 65.05 | +4.54%
Long CF | 140.60 | stop 136.05 | +7.95% Long SDS | 21.15 | stop 19.90 | -0.47%
Long SINA | 87.55 | stop 77.50 | +7.24% Short SPY | 133.10 | stop 136.00 | -0.25%
Long BIDU | 118.30 | stop 113.00 | +8.88% Short QQQQ | 58.45 | stop 60.10 | -0.22%
Long MSFT | 27.90 | stop 26.95 | -2.40%
Long TYO | 46.70 | stop 45.00 | +3.43% CLOSED
Long AMRN | 8.85 | stop 7.65 | -3.38%
Long DECK | 79.92 | stop 77.00 | +8.19% Long /ZR | 14.64 | sell 15.88 | +8.47%
Long LULU | 75.15 | stop 71.45 | +11.38% Long TSLA | 23.95 | sell 23.15 | -3.34%
Long CMG | 240.67 | stop 232.40 | +13.41% Short FCX | 56.05 | cover 55.15 | +1.61%
Long DNR | 21.60 | stop 20.10 | +4.26% Short WLT | 121.55 | cover 122.85 | -1.07%
Long MAC | 49.01 | stop 47.65 | +0.53% Long HAWK | 7.71 | sell 4.75| -38.39%
Long A | 44.34 | stop 40.00 | +1.00%
Long PCLN | 440.72 | stop 423.00 | +3.72% NEW
Long WLL | 126.04 | stop 120.00 | -1.53%
Long AUDC | 7.98 | stop 6.95 | -3.19% Short EUR/CHF | 1.3085 | stop 1.3195
Long IMAX | 27.70 | stop 26.00 | +0.49% Short CKEC | 7.33 | stop 8.05
Long TOL | 20.90 | stop 20.00 | +1.18% Long JKS | 29.33 | stop 24.60
Long VECO | 47.60 | stop 42.50 | +9.83% Long TSL | 28.15 | stop 25.40
Long CTSH | 76.83 | stop 72.50 | -0.23%
Short SCCO | 45.06 | stop 47.60 | +0.84%
Long LEN | 21.10 | stop 20.25 | -2.30% If you would like to subscribe to Shadow Capitalism Daily Market Commentary,
Short AUD/SGD | 1.2905 | stop 1.2995 | +95 pips please email me at [email protected] to be added to the mailing list.
February 15, 2011|6

DISCLAIMER: Nothing contained anywhere in this commentary, including
analysis and trade ideas, constitutes or should be construed as investing or
financial advice, suggestion, or recommendation. Please consult a financial
professional and do due diligence before engaging in any purchase or sale of
securities.
February 15, 2011|7

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Shadow Capitalism

Market Commentary by Naufal Sanaullah

February 15, 2011|1

February 15, 2011|2

February 15, 2011|3

 Q4 Greece GDP (time N/A: -1.5% expected | -1.3% prior – QoQ)

February 15, 2011|4

Best of luck trading.

February 15, 2011|5

February 15, 2011|6

February 15, 2011|7

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